Key points
Gold output increased 24% for the three months to 31 December 2021, year-on-year
The company has a lower forward P/E ratio than a major competitor
It is investing $471m in a new mining project
With the developing situation in Ukraine and Russia, the share prices of many companies operating in the region plummeted yesterday. Polymetal International (LSE: POLY), a FTSE 100 gold miner, fell 40%. With mines across Russia and Kazakhstan, investors became nervous that production would grind to a halt or Western sanctions would target the company. I am trying to look beyond this issue to assess the firm’s performance over a longer period, although I’m not ignoring the severity of the conflict. This is with a view to holding the shares for the long term. Let’s take a closer look.
A FTSE 100 business with a strong track record
In a recent trading update for the three months to 31 December 2021, Polymetal stated that gold production was up 2% year-on-year. Indeed, this was 5% above guidance. Furthermore, gold output increased 24% in comparison with the same period in 2020. On the other hand, revenue declined by 6% year-on-year. The firm explained that this was largely due to lower gold prices during the period. I expect this to change in the next quarter, given the rise in the gold price recently.
The business also has a strong earnings record. Between the calendar years 2016 and 2020, earnings per share (EPS) grew from ¢90 to ¢228. By my calculations, this amounts to a compounding annual EPS growth rate of 20.4%. As a potential investor, I find this both impressive and consistent.
A cheap stock at current levels?
By taking a look at the company’s price-to-earnings (P/E) ratio, I may better understand the extent to which it is under- or overvalued. Indeed, Polymetal has a forward P/E ratio, based on forecast earnings, of 9.73. On its own, this doesn’t tell me much. Compared to Barrick Gold, a major competitor, it does seem cheap. Barrick Gold has a forward P/E ratio of 23.04. For me, this is an indicator that Polymetal may indeed be undervalued at its current price.
Of course, I can’t ignore the impact of the Ukraine crisis on this firm. Yesterday the share price fell 40% on fears of military action affecting production and the possibility of sanctions. While it is possible that the business could be further impacted by these events, the company’s long-term track record is strong. Indeed, management recently signed on a deal to invest $471m in the Veduga mine project in southern Russia. This is estimated to yield 200,000 ounces of gold per year for 21 years.
While I won’t be buying this stock right now, I will be keeping a close eye to see if revenue begins to increase. This is likely, given the rising price of gold. I will certainly not rule out a purchase in the future.
The post Here’s why I’m watching this FTSE 100 stock, down 40% yesterday appeared first on The Motley Fool UK.
FREE REPORT: Why this £5 stock could be set to surge
Are you on the lookout for UK growth stocks?
If so, get this FREE no-strings report now.
While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.
And the performance of this company really is stunning.
In 2019, it returned £150million to shareholders through buybacks and dividends.
We believe its financial position is about as solid as anything we’ve seen.
Since 2016, annual revenues increased 31%
In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
Operating cash flow is up 47%. (Even its operating margins are rising every year!)
Quite simply, we believe it’s a fantastic Foolish growth pick.
What’s more, it deserves your attention today.
So please don’t wait another moment.
Get the full details on this £5 stock now – while your report is free.
More reading
I was utterly wrong about these 2 battered FTSE 100 stocks!
Stock market crash? I’m buying this FTSE 100 stock
These 3 cheap shares pay cash dividends of up to 25% a year!
3 of the best cheap FTSE 100 dividend stocks to buy!
2 of the best FTSE 100 stocks to buy!
Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
